American, US Airways one step closer to merger

American Airlines and US Airways are one step closer to a potential merger.

The companies said Friday they have started confidential merger talks. But a deal is still far from reality.

"It does not mean we are merging it simply means we have agreed to work together to discuss and analyze a potential merger," US Airways CEO Doug Parker said in a letter to employees Friday.

Such a merger would put the combined airline on par with the world's largest United Continental Holdings Inc. and the slightly smaller Delta Air Lines. Its position as the No. 1 or No. 2 airline in the world, based on how many miles its passengers fly, would depend on how many routes anti-trust regulators force the combined airline to abandon.

Many industry experts say the only way American and US Airways can compete with larger rivals is by merging their strengths. US Airways would gain American's lucrative international routes while American's larger hubs would be fed passengers from US Airways' network in smaller U.S. cities.

For passengers, a merger would have no immediate impact. But a year or two into the combination, changes would ramp up: Frequent flier programmes would merge, fares could rise, planes would take on American Airlines' colours and glitches could surface as their reservation systems integrate.

Parker has been pushing for a merger since American's parent company, AMR Corporation, entered Chapter 11 bankruptcy protection on November 29, 2011. American Airlines CEO Tom Horton has said his airline is weighing several options, including remaining independent or merging with one of several airlines, including US Airways Group Inc.

AP